China should use yuan for fine-tuning -economist

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BEIJING, Oct 22 (Reuters) - China should use the yuan's exchange rate as one of its main tools for fine-tuning monetary policy in coming months, a government economist said in comments published on Thursday.

China has effectively repegged the yuan to the dollar since July last year when the global financial crisis worsened, but the strength of the economy's recovery has attracted capital inflows and placed upward pressure on the currency.

Beijing sent a clear message on Wednesday that it would gradually unwind its ultra-loose pro-growth policies -- of which a stable exchange rate has been a key one -- but the market expects it to allow only minimal yuan appreciation over the next year. [ID:nPEK230597]

"Maintaining the appropriately loose thrust, we should use monetary, regulatory and exchange rate tools to implement structural fine-tuning," Chen Daofu, an economist with the Development Research Centre, a think-tank under the cabinet, was cited as saying in the official China Securities Journal.

The State Council, China's cabinet, said the economy had performed better than expected in the first nine months of the year and that recovery had been "consolidated", a shift in rhetoric that lays the ground for policy adjustment.

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The cabinet also put inflation back on the government's agenda, saying it was important to manage inflation expectations in coming months alongside securing steady economic growth.

But Chen said that inflationary pressure, whether at the consumer or producer level, was not especially great. Instead, he said policymakers should focus on volatile asset prices, commodity prices and monetary conditions.

Separately, the newspaper said in a front-page article that talk of "credit tightening" was again swirling in the market.

China has used strict quotas in the past to control bank lending, though it has resorted mainly to moral suasion in recent months to rein in banks after a record surge of credit in the first half of the year.

A loan officer at an unnamed commercial bank was quoted as saying that its head office had made it much harder to approve loans since September and demanded more collateral from borrowers. (Reporting by Simon Rabinovitch and Huang Yan; Editing by Alan Wheatley and Ken Wills)